What is the statute of limitations for taxes?
The IRS, similar to any collections agency, can only collect debts for a certain amount of time. These time limitations, or statutes of limitation, are clearly spelled out in the tax code. It is always a good idea if you are facing an IRS audit to familiarize yourself with the tax statute of limitations, just in case the IRS has overstepped their limit.
General Statute of Limitations for Taxes
According to the United States Tax Code, the IRS can collect incorrectly filed taxes for three years from the date you filed the original tax return. This means that if you filed an incorrect tax return in 2007 they can only audit and collect the owed taxes until 2010, after that the statute of limitations has run out.
In addition, if you paid taxes with the filed return, the statute of limitations is reduced to only 2 years. So, if in 2007 you paid any amount of taxes owed, then the IRS could only audit you through 2009.
Tax Statute of Limitation Exceptions
As always, the law never rewards those who are intentionally acting dishonestly. If you fail to report more than 25% of your income on your tax return, the statute of limitations that the IRS has for an audit and collection is extended to 6 years. So, as in the example above, they can collect from you until 2013.
If you lie about your income on your tax return, then there is no statute of limitations. This means that the IRS can audit you at any time and challenge your filing. Although, the IRS is limited to collecting that determined debt for 10 years after they make the final assessment. After that time, the statute of limitations is up.
If you feel that the IRS has overstepped their tax statute of limitations restrictions with an audit of your tax returns, consult with a tax law attorney. The attorney will be able to make a professional conclusion and may offer to provide you with a letter for the IRS.